Indian IT stocks crashed as much as 8% after the US tech stocks tumbled overnight on the news of Anthropic developing new AI tools, aided by the strong Indian Rupee. Nifty IT plunged 6%, and all the constituents of the sectoral index were trading in the red.
The share price of Persistent Systems fell the most, dropping 7.5% to a low of Rs 5,804 on the National Stock Exchange. It was followed by LTIMindtree, Coforge, Infosys, and many other IT stocks.
At the time of closing, Nifty IT was down 5.9%, recovering a tad from the day’s low, but still deep in the red. Infosys was hurt the most, cracking 7.4% at the end. It was followed by TCS, Coforge, and LTIMindtree, closing over 6% lower.
“Anthropic’s new AI automation tools triggered global fears that advanced AI could rapidly replace many outsourced services. The launch caused a sharp sell‑off in global software stocks, as investors worried that foundation models like Claude can now bypass SaaS platforms and IT service providers,” said Vinod Nair, Head of Research at Geojit Investments.
“This sentiment spillover hit the Indian IT sector being traditionally handles such projects. This development intensified fears of increased competition, reduced demand for traditional outsourcing services and margin pressure for software companies,” he added.
“Interesting that indian IT stocks are down now because of a fear of AI cutting into their business. The trajectory might not be easy to predict, but it’s the boring, repeatable job that will go first, and these companies will need to upskill to become the AI orchestrators of choice,” said Deepak Shenoy, Chief Executive Officer of Capital Mind AMC, in a post on social media platform X (formerly Twitter).
Rout across US tech stocks
US tech stocks saw a sharp decline on Tuesday as investors digested a wave of tech-focused earnings. The tech-major Nasdaq Composite fell 1.4%, with its sell-off gaining steam throughout the day. The S&P 500 cracked 0.8%. The Dow Jones Industrial Average pulled back nearly 0.3%.
The fear was sparked after Anthropic introduced 11 new plug-ins for its Claude co-work agent, which could automate tasks in areas such as legal, sales, marketing, and data analysis on a global scale. Investors are expecting a large disruption across the software ecosystem.
The share price of Nvidia, a US chip giant, dropped nearly 3% amid signs of cooling relations with OpenAI. The startup’s disappointment with Nvidia’s newest AI chips has hindered discussions with the chip manufacturer regarding an investment of as much as $100 billion. Both Amazon and Microsoft experienced a decline as software stocks continued to be sold off.
Sharp sell-off in Indian ADRs
The sharp sell-off in the US tech stocks led to a fall in Indian tech stocks’ American Depository Receipts (ADRs).
The ADRs listed on the New York Stock Exchange – Infosys and Wipro – fell as much as 5.5%. The share price of Infosys dropped to $17.32, down 5.5%, while that of Wipro plunged 4.8% to close at $2.56.
Investors focused on Indian markets tend to follow ADRs. Since the US market trades while India is asleep, ADRs provide the first reaction to global events before the NSE and BSE open the next morning.
Weakening Dollar and appreciating Rupee
On Tuesday, the Indian Rupee emerged as the best-performing Asian currency. The domestic currency gained 122 paise or 1.33% in a single trading session to close the trade at 90.27 against the US dollar. This strong move came after India and the US agreed to a trade deal.
Additionally, a decline in crude oil prices and anticipated foreign inflows also boosted investor confidence.
Indian Rupee and IT stocks have an inverse relationship. When the Indian Rupee appreciates, IT stocks typically fall. IT companies export services to the US market. They earn most of their revenue in US Dollars, but they pay their biggest expenses, which are employee salaries, office rent, and electricity, in Indian Rupees. So an appreciating Indian Rupee hits their revenue.